Entries in category Income Protection

What Should I Look for in an Income Protection Insurance Policy?

Income protection insurance should be on the top of the priority list for all the working people. This insurance policy can give you a large portion of your salary if you are not able to work due to some illness or injury. The time for which you get the benefits depend on your choice of the length of the cover that is for 2 years, 6 years or till the age of 60 or 65. The insured will have to pay for the cover he chooses. The income protection insurance policy and the critical illness coverage should be the coverage looked for by unmarried individuals that do not have any liabilities, dependents in case he loses job or dies.

There are few things that you need to consider or look for in an income protection insurance policy. The first thing you need to know is whether you require indemnity or agreed value income protection insurance. Agreed value insurance is one of the most expensive policies and it agrees to pay off income at the very star of the policy and does not get affected by fluctuations in the salary. Indemnity value insurance is cheaper and is the most commonly used income protection plan which verifies your income at the time of making claim and accordingly pays the benefits. The cheapest policy is the superannuation plan which is based on indemnity and offers least flexibility and features.

Shop around for different insurance policies and compare the cost. The premium amount will be based on

  • Age, with age the cover decreases or the premium increases so look for the policy which gives you the best deal in such cases
  • Gender, check the policy on gender for giving income protection
  • Check if they have the coverage for pre-existing conditions as well
  • The type of occupation also affects the coverage and hence should check the policy benefits for your occupation.
  • The waiting period also affects the premium that you pay and hence look for the same while taking up the policy.
  • Also check if they have the option of stepped premium and level premiums. The stepped premium is cheaper in the beginning but becomes expensive with time. However, level premiums are constant and though seem to be more in the beginning generally becomes a cheaper option after 10 to 12 years of coverage.

What is Income Protection Insurance?

Income protection insurance was previously known as PHI or permanent health insurance. Income protection insurance is a long term insurance policy that pays you an income even when you are not working but only due to an injury or illness. Income protection often pays out till the person’s retirement, death or till he returns back to job. There are some short term policies which are now available and hence are also cheaper. Income protection insurance does not pay benefits in case you have been made redundant but definitely can help you get back to work if you are sick or injured.

Income protection insurance is a must for all those who are working and especially for those who run the risk of being out of work due to illness or injury. The payouts are generally based on certain percentage of your income and the generally it is 50% to 70%. However, in some case it can be as high as 85% of your income. The payment made is tax free and hence a great relief. All the income protection insurance plans have a waiting period and hence one should know that the benefits will get paid only when the waiting period gets over. The waiting period can be 30 days, 60 days, 90 days and even up to 2 years. The longer is the waiting period lesser is the premium amount.

Some of the employers cover for their employees for a year or so in case of sickness or injury. In such case one can choose for a policy with deferred period of 12 months. The state benefits are also available in such cases but are very low and mostly does not suffice for the average salary of a wage worker and hence require private insurance.

Taking up income protection insurance helps you to pay out your monthly bills and any mortgage that you may have even when you are not going to work due to illness. It also helps you financially secure your family and provide for your children education even when you are not going to work. The disability or illness is defined by the insurance company and must be fulfilled to avail the benefits. Shop around for the best insurance companies which will give you the best deal on your income protection insurance plan. So, if you are working, income protection insurance should be on your priority list.

Unemployment Insurance

Unemployment insurance in USA is a scheme started under the Social Security Act of 1935 and is organized by the federal-state system and is the system of providing basic income support for all those who are unemployed workers. Salary- paid individuals or wage earners who lose their job for reasons other than the misconduct are given a part of their salary for a specific period. Unemployment insurance is provided by the Department of Labor’s Unemployment Insurance programs to all those workers who were employed and lost their job due to some reason but not their fault. They must also meet certain other eligibility criteria.

The eligibility for availing the unemployment insurance benefits, the amount and the length is decided by the state law under which you have claimed for the benefits. Every state has their own laws but is governed by the federal law as well. To avail the facilities you must fulfill the eligibility criteria of the state like:

  • Every state has their own requirements for the wages earned and the length of time that you have been employed. You must meet these limits set by the government to avail the benefits. The established time period is also called as “base period”
  • The state determines that you have been unemployed with no fault of yours.
  • For filing the claim you should contact the State Unemployment Agency soon after becoming unemployed. A few states have the facility of filing the claim over phone and internet.
  • When filing the claim you may need to furnish certain information like address of your employment, the time for which you worked there, so that your claim is not delayed and you get the correct amount.
  • The claim should be filed with the state in which you are working. If you have worked in state different from where you live now or if you worked in multiple states, the UI agency of your state can help you in providing the information on filing the claim in such cases.
  • The benefits of the claim require 2 to 3 weeks after filing the claim to reach you.

You may need to file claim weekly or biweekly and also respond to question regarding your continued unemployment to avail the benefits. You may require furnishing information on any earning made during the week, any offers or their refusal and the reason. The claims can be filed through phone and internet.

Self Employed Income Protection

There are various types of insurances like life insurance, vehicle insurance, property insurance and one of them is income protection insurance. There are many types of income insurances and one among them is self-employed income protection. This is very popular type of insurance among the self-employed people. Employees are provided with sick leave and pay and insurance benefits. However, employers do not have any sick pay or any income insurance benefits and for them the self-employed income protection insurance is a boon.

When self-employed you should consider certain questions like, how to supplement your income when you are ill or not able to work due to some medical reason? How long will the saving last in case there is no income for some time?  Will the state benefits or the spouse’s income be enough? Self-employed income protection comes to rescue and in general insures 50% to 70% of the gross income. In case of a medical condition which keeps you off from your work, the insurance replaces your income and allows you to pay for your  monthly bills like that of the mortgage, rent, utilities, council taxes, food and many such expenses.

Why to have Self-employed income protection?

  • Even when not earning, the income through insurance allows you to pay your bills on time and so you keep being a good borrower.
  • Financial issues are the biggest cause of stress and replacement income comes as a sigh of relief as it does not add to the worries of coping with the financial issues.
  • It gives you the liberty to take the time required to completely recover from the illness and need to require you to hush to the office even when not completely cured.

What are the documents required to show that you are self-employed?

  • The income protection insurance gives almost the same benefit whether employed or self-employed and the main difference lies in the fact that how you prove your net income. For sole traders, they may be asked to show proof of their net profit, like your 12 months earnings or average earning in previous 3 years.
  • For limited companies directors they will get the cover for their salary plus dividend payments and on P11D benefits if they have. Some insurers may not take into account dividends.
  • In case of partnership, you will have to show your share in the net profit of the company.

Salary Insurance

Certain things in life need to be catered even when you are not well or is disposed like child’s education, his/her marriage or providing financial securities to your near and dear ones. For this you will require to invest in a product that will give you a guaranteed income in the time of need and this is where salary insurance comes into being. Income protection insurance or salary insurance is a monthly benefit plan which pays you when you are out of salary due to some illness, injury or trauma. The payment through the insurance can be up to 75% of the income and is provided to you until you are fit enough to get back to work. In case you are not able to go back to work the insurance policy pays you till the age of 65 or in other words till you retirement age. Income protection insurance is tax deductible and is so designed that you can pay off your monthly bills and feed your family and tide over any financial crunch.

Why do we need income protection?

A research says that some of the employers around 12% cover for their employee in case of sick leave and that too for a year.  Thus everyone who is working or is of working age should opt for income protection. However, the same report says that only 9% of the working class has some or the other form of income protection when compared to 41% of them having life insurance and 16% of them have private medical insurance. One of the survey stated that only one-fourth of the working people considered income protection as necessary. However, income protection is a very essential to save you from the financial worries in case you do not go for work due to any medical reason. The insurance covers for your income till you gets back to work or until you retire or till your death, whichever comes first.

Is Income protection insurance and PPI same?

PPI or payment protection insurance are not the same thing. PPI covers for a specific debt and the money goes directly to the lender whereas in case of income protection the insurance company covers for your tax free income and gives it to you for your personal expenses. It is same as salary or you may say a replacement for the salary in case you cannot go to work due to illness or some injury.

Mortgage Income Protection

Mortgage income protection plan is a monthly benefit which is given in case you are not alble to work due to illness or injury. Mortgage protection is a short term payment plans which covers for the income loss in case you are not able to go for work due to some illness, injury or accident, but the cover is only for 12 months. These plans are designed specifically to cover for the repayments of mortgage and the maximum amount that you are eligible is mostly 125% of the total monthly repayments. These policies are mostly termed as Mortgage Payment Protection or MPP.

The main question that lingers our mind when we think of taking a MPPI plans are:

  • When will it start paying?
    The policies mostly start paying out after 30 to 60 days once the issue has started. The payment is mostly made only for 12 months period. Some of the companies provide “back to day one” facility in which they backdate the benefits so that you get the cover for previous periods also. This is of great help as you will not require a cover in case you lose the work only for a few weeks.
  • Are the policy periods limited?
    Yes! Most of the policies pay out for 12 months. However, there are some companies which are cheaper and provide cover only for 3 months and for most people this is beneficial as after that the state benefit will kick in.
  • Is there a maximum payout limit?
    Most of the policies limit the monthly payout from $1500 to $2000 and hence can be an issue for those who have bigger mortgages, especially if the rate of interest rises.
  • Switching from one policy to another cheaper one can save you a fortune but it is not always safe to do so. This is because most of the companies prevent you from making a claim in the first 3 to 6 months of taking up the policy. Some of the companies do not cover if there is pre-existing disease or when there is foreseeability of redundancy. This can be a trouble if you have switched to new policy and are on the verge of losing your job.

Mortgage protection plans are not simple policy and it is advised that one should get advice from a private consultant who will give you unbiased advice.

IPI – Benefits, Restrictions, Suitability and Need, Pricing

Income protection is an insurance policy that covers for your income when you are not able to work due to some injury or illness. It pays a part of your salary monthly to the insured and in other word can be touted as replacement salary. Income protection insurance was previously known as PHI or permanent health insurance. There are several factors attached to income protection insurance which one should be aware of before taking it up and it includes:

Benefits

There are several benefits of income protection insurance over many other types of insurances like that of sickness, accident, personal accident and unemployment insurance.

  • The benefits of IP insurance is that the policyholder is given the benefit in case he becomes incapacitated till he recovers, retirement or death, whichever comes first. It may also end up with the end of the contract.
  • The benefits are paid to the policyholder monthly or weekly and the best part is that it is tax free.
  • The insurance company cannot cancel or refuse to renew the policy of the policy holder is paying the premium regularly and has not committed any fraud

Restrictions

There are a number of restrictions which may affect the eligibility of the policyholder for the benefits:

  • The policy will not pay the benefits if the insured becomes unemployed for a reason which is other than that of injury or illness.
  • The waiting period is long and the minimum is 30 days or can be as long as 2 years. However, longer is the waiting period lesser is the premium amount.
  • Exclusions are mentioned in the policy for no coverage if illness is due to alcohol abuse, self-harm, criminal acts and pregnancy.
  • The policy may become invalid for the policyholder if they change their occupation

Suitability and Need

  • IPI is needed even though there are state benefits available as the given income is way less than the average salary of the wage earner and hence additional protection is required. It is also advised to take the policy whose benefits lasts till the retirement age of the policy holder.
  • The policy is of no use if the unemployment is due to reason other than injury or illness.
  • The policy does not provide health insurance, death benefits or coverage for critical illness

Pricing

The income protection insurance policies are pretty expensive as it guarantees the benefits. However, the premium can be lessened if the deferred period is increased.

 

Income Protection Insurance in UK

Income protection insurance is very much essential for all the working people as it protects them from being in financial crisis in case they cannot go to work due to some injury or illness. The income protection insurance is also gaining popularity in United Kingdom and many companies have come with such policies. Income protection insurance is essential as it protects you from an unexpected situation in which you cannot go to work due to a medical condition. This provides you with peace of mind in case of a financial crisis. The income protection insurance provides you with monthly payments and in other words is a replacement for your salary.

Many of the companies in UK provide you with coverage for your income in case an injury, illness, accident or involuntary unemployment stops you from going to work. The benefit paid depends mainly on the cover that you have chosen for yourself. Most of the companies provide benefit up to 50% to 75% of the taxable income prom your primary employment. The benefit mostly is limited to a maximum of 2000 pounds monthly and the benefit is mostly available for a period of 12 to 24 months.

Some of the insurance companies in UK also continue the benefit even if you go back to work but with reduced salary. The payments currently in UK are tax free which may change in near future. Unless the policy is canceled by the insurer or the insured the cover will last as long as the insured continues to pay the premiums but only till his retirement. To be eligible for the benefit the insured must be aged between 18 and 69 at the time of making the claim. Before you go for claim, make sure you go through all the terms of the cover and make sure that none of the exclusions apply to you to get the benefit payable on time and without any deduction.

Income protection insurance is definitely a boon for all those working as it helps us cope with any unexpected situation in which the salary stops as you are unable to go to work. However, the tough time is finding the right policy to cover your income. It is a good idea to consult a financial advisor who will suggest you the right policy for your income coverage after assessing your financial conditions.

 

Income Protection Insurance in Other Countries

Income protection insurance is a type of insurance policy which is primarily available in countries like Australia, New Zealand, Ireland, United Kingdom and South Africa other than USA. The insurance pays benefits to the working people who become incapacitated to perform their regular work due to some injury or illness. It was known as Permanent Health insurance. Most of the income protection companies in these countries cover individuals who are working and pay a part of their income in case they are disabled due to injury or illness and cannot carry on their regular job.

The income protection insurance mostly covers 75% of their income for a defined period. In almost all the countries there is a waiting period for which the insurance companies do not pay any benefit and the dates are calculated for the same from the day you file the claim. The waiting period varies from 30 days to 2 years and the insured has the liberty to choose the same. However, longer is the waiting period, lower is the premium amount. The length of the benefit depends on the type of coverage that you have taken. It can be for 2 years, 5 years or till the age of retirement. Once your eligibility is confirmed, the company provides the benefit till the insured gets back to work, retires or dies, whichever comes first.

Most of the policies in Australia provide benefit to an insured if he is not able to conduct his occupation, even if the hold policy is under superannuation. In Australia the income protection insurance is underwritten which includes medical, business and income risk. The application sent should include information on the medical history, occupational history and also the history. In case of probability of high risk of the insurer, the company may include exclusion or increase the premium amount. When the application is sent the income of the person seeking insurance need to be substantiated, after which the benefits are paid as agreed upon and no more further medical history is required.

The income protection insurance is very much same in all the countries with an exception of a few. All such insurance policies have the same aim of protecting your income or safeguarding your family from financial crisis when you cannot go to work due to some medical condition. If you are working, it is advised that you take up income protection insurance plan.

Income protection Insurance for Redundancy

Redundancy is very common during recession period and some unlucky people do lose their job. In case of redundancy the people lose their regular income and for most of the people the savings can only carry them for a few months without salary. Redundancy cover becomes essential when you are married and have children. Well, it is not advisable to wait for the worst to happen and then look for solution. It is a wise decision to have some kind of income protection that provides replacement of your salary even when you are redundant. It may not be possible for you to get an insurance cover when the employer has started the redundancy consultations.

The redundancy cover is provided by many income protection plans and is of great help for all those who have the fear of losing their jobs. However, there are many pitfalls of taking a redundancy cover which the buyer must be aware of. The policies may be filled with exclusions especially for those who are self-employed or having two jobs. Some of the insurance companies do not provide coverage if the insured loses his or her job within 60 days of getting the cover. This is the reason why everyone should plan for such cover beforehand. It is very important that you choose a company and the plan which gives the service as mentioned on the tin. There are some covers which themselves disappear in case of severe downturn. When buying the policy one must read the document very carefully, even that clause that are written in very small prints as they have the power to cancel the policy or can raise the rates with a notice of just 28 days.

The payment on redundancy will depend mostly on the contract of your employment. Based on the contract of the employment a formula is set to compensate you in case you lose your job. Some of the large firms and companies are very generous in their terms and may also enhance the offers made in case they are planning for redundancy of their employees. But some of them chip away with their contractual terms. The payment is based on the wage the person was earning in the first 12 weeks before they became redundant but it excludes all the bonuses or overtime that you may have earned. Income protection for redundancy is definitely a sigh of relief in case you become redundant.